Owning a business isn’t always a one-man show. Sometimes, going into a partnership to start a small business can have advantages. However, the catch is you and your partners will split the income and losses of your business amongst yourselves, which will ultimately be negotiated by you. To help you decide what percentage of your business to give up, here are five factors to consider.
1. Who’s Providing the Start-Up Capital?
This probably sounds like a no-brainer, but the reality is one of the most critical factors in determining each partner’s per cent ownership is who is putting up the capital. If you’re the one who is providing the funding, you should have a larger stake in the business. Start-up capital can be monetary or in-kind services or goods.
2. Who’s Going to Provide the Skills and Expertise?
Each partner also brings something to the table in the form of skills and expertise. If one partner has a specific skill you need on your team, it’s even more reason to give them a larger percentage of the business. For example, if you can’t sew or know anything about sewing, you’ll definitely want to partner with someone who has the skills and expertise to bring those elements to your business.
3. What Will Be Expected from Each Partner?
The level of work and commitment each partner is willing to put forth in terms of time and energy will also affect determining the percentage of ownership. In other words, if you’re willing to put in long hours and take on more responsibilities than your partner, you could ask for a higher percentage of the business.
If one partner is going to be managing the business and the other partner is going to be doing the actual work, it only makes sense the manager would get a larger percentage of the business. The same goes for partners who are putting in the same amount of effort, but one has more experience in management than the other.
4. How Much Risk Are You Taking?
If you have more money and resources at your back and you’re not as invested in the business, you may be more willing to risk it all. Partners with more financial risk at stake may be more protective of the business and want to be a higher per cent owner.
5. What Are Your Goals?
If one partner has a more aggressive growth plan than the other partner, they’ll likely want a larger percentage of the business to help them get there. For example, if one partner’s goal is to open five stores and the other partner’s goal is to keep it at one store and make it successful, the partner with a larger growth plan should get a bigger percentage of the business.
6. How Long Will Each Partner Be Involved?
It’s also important to determine how long you are going to be involved in the business. Will you be staying for the long haul, or will you have other plans in a year or two? The answer to that question will also affect the percentage of ownership each partner wants or needs. For example, if you know you’ll be leaving the business in a few years and your partner wants to continue running the business, you might be willing to give your partner a larger percentage if you know they won’t be able to buy you out.
Calculating the percentage of ownership each partner gets is all about making sure you’re fairly compensated for your efforts and that you’re all on the same page about what your expectations are. Don’t just go into your business blindly. Take the time to do your homework and make sure you and your partners are on the same page from the start. You’ll thank yourself later.
If you need help with the legal side of your business, it’s best to work with a firm that has the skills and experiences to back you up. GLG Legal happens to be just that. We are an ambitious commercial and property law practice based in Brisbane. Contact us today today to schedule a consultation. Our commercial lawyers are always ready to assist you.